One major worry that couples face when they divorce is property division. Who gets the house, who gets the car, and how will you divide up everything else? Even couples who expect straightforward, quick divorces may find property division surprisingly stressful.
Property Division Basics
North Carolina uses an equitable distribution system to divide property in a divorce. This means that the judge overseeing the divorce will decide how to give each spouse a fair portion of the couple’s marital and divisible property. Equitable distribution is different than the community property method of property division, which applies in different states with different laws.
It is important to note that marital property includes all property that you and your spouse acquired or earned during marriage. Property that each of you already owned before the marriage is called separate property. Divisible property includes any changes in the value of marital property between your separation dates and when the property is distributed, such as bank interest. It also includes anything that you earned during marriage but did not receive until after separation, like a bonus.
Who Keeps the House and Car?
The equitable distribution system takes into account that you may own assets that are difficult to divide – such as a house or a car. To make a fair division of marital property, the judge must decide who will keep those valuable assets. Many different factors may influence the way property is divided, including but not limited to:
• Each spouse’s income, property, and liabilities
• A parent who has child custody needing to occupy or own the marital residence and to use or own its household effects
• Whether property is liquid or non-liquid
• Any claim to or contribution made to the acquisition of marital property by the spouse who doesn’t have title to the property
• Length of the marriage
• Age and health of the spouses
• Any alimony or child support requirements from a prior marriage
• Tax consequences to each spouse
For example, a parent who has sole child custody may need to use the family’s house to house the children, as well as need to maintain residence in the same school district so the children don’t have to change schools. This could be a situation that influences property division.
Also, who has title to the house or who “wants” the house the most may not matter for equitable distribution purposes. It’s more about making a fair division of the marital property based on evaluating the many factors listed in the law.
Can We Decide Property Division Ahead of Time?
With the help of a divorce lawyer near you, you can decide aspects of property division ahead of time. Typically you would do this in a prenuptial agreement, postnuptial agreement, or separation agreement. Prenuptial agreements are signed before marriage, while postnuptial agreements are signed during marriage. Separation agreements are signed either just before or during separation. All of these agreements can include explanations of how the couple agrees to divide marital property should they divorce.
For example, you could expressly state that one spouse keeps the house while the other gets the car. Or you could agree to sell the house and split the proceeds should you divorce. There are many ways to divide property that can be explained in a written agreement. If you are interested in signing such an agreement, contact a family law attorney who can help you prepare it.
How is property divided after a divorce?
When the court grants a divorce, property will be divided equitably (not always equally) between the two spouses. This is decided under the Equitable Distribution Law. During the divorce both spouses have to tell the court about their income and any debts they owe.
What does equitable distribution mean?
Equitable distribution means fairly divided. When marital property is distributed equitably, it is divided between the two spouses as fairly as the court thinks is possible. Although this does not guarantee that the court will decide the property should be divided equally (50-50), this is usually what happens.
What property can be divided in the divorce?
There are two different types of property for the purposes of a divorce. Property that the couple bought during the marriage is called “marital property”. Property that belonged to you before the marriage or was a gift to just you from someone other than your spouse is called “separate property”. Marital property can be divided between the two spouses.
What is marital property?
Marital property includes all property either spouse bought during the marriage. It does not matter whose name is on the title. For example, if a couple bought a home, but only the husband’s name was on the deed, the wife would still be entitled to some of the value of the home if they were to get a divorce.
What is separate property?
Separate property is property that one of the spouses owned before the marriage. For example, a bicycle that the wife had owned since before her marriage would be considered separate property. Any inheritance one spouse gets, even during marriage, is separate property. So are personal gifts (unless they came from the other spouse) and payments for personal injuries.
Can separate property become marital property?
Separate property can become marital property if it is mixed with marital property. For example, if one of the spouses uses money they had before the marriage to buy a house for the couple, that money might become marital property.
What happens if the value of my separate property goes up during my marriage?
If the value of the separate property goes up only by luck (for example, random changes in the market) then the rise in value is still separate property. If the value of the property goes up because your spouse helped to improve the property, then the rise in value may be considered marital property.
Is my pension marital property?
Yes. Pension plans, IRAs, 401ks, and other retirement plans are considered marital property. The portion of these plans that a spouse earned during the marriage will be divided by the court.
How does the court determine what is equitable?
The court should consider these things when deciding how to distribute the marital property:
• The income and property of each spouse at the time of the marriage
• How long the marriage lasted
• The age and health of both spouses
• If there are children, whether or not one spouse the custodial parent needs the home or any other marital property while the children are growing up.
• The loss of inheritance and pension benefits
• The effort of a spouse in the household (for example, a homemaker sacrificing her career for her husband’s sake)
Is the property distribution affected by who is at fault in the divorce?
Usually not. In cases of abuse, the abuse usually must be at the level of a violent felony to affect distribution. Distribution is more likely to be affected if one spouse has refused to help support the family or spent above the family’s means.
Who is responsible for debts?
The court or a divorce agreement can decide who is responsible for any debts. However, if you co-signed with your spouse and your spouse does not make debt payments as they have been ordered, you can still be held responsible by the lender.
What should I do to protect myself from debt that my spouse is responsible for?
You should write to creditors to ask them to close any joint accounts. Otherwise, you will be held responsible for the current debt and any future debt if your spouse continues to use the account.
How does the court decide if the home must be sold?
The court will consider how much the home is worth. It will also look at any mortgages and the other types of housing options.
What are exclusive occupancy rights?
Exclusive occupancy rights give one spouse the right to live in the house. The other spouse must find somewhere else to live. These rights can be given to the parent with custody of the children if the court has delayed the sale of the home. They can also be given for the safety of one of the spouses while the divorce is happening. Courts can give orders of protection, which can make the person the order is taken against to stay away from the home.
Of all the major financial decisions you’ll need to make in a divorce, few will involve larger amounts of money than the decision of what to do with the house. Few will also have a greater impact on the next chapter of your life.
Some couples simply choose to sell, split the proceeds evenly and go their separate ways. Others choose to defer the sale of the home until a later date, especially if kids are involved.
But for many divorcing couples, one spouse is inclined to keep the family home and own it outright on their own. The reason, again, could be that children are living at home and there is the goal of minimizing disruption by letting them reside there. Alternatively, if you don’t have kids, perhaps you love your house so much you don’t want to let it go. Or maybe the choice is being made out of pride and ego. Whatever the reason, it is well within your right to pursue sole ownership (after all, the house is partially yours).
So you’ve decided you want it, but how do you get it?
First, find out the price tag.
In a perfect world, your spouse gives you the green light to pursue purchasing the house from them. But in my experience, a spouse is less likely to agree to a buyout until it’s proven that the other spouse can actually afford it. Otherwise, why would they agree to such an arrangement? You wouldn’t agree to sell your home to a buyer who ultimately couldn’t afford it. The same concept applies here.
Agreeing on a fair value can be a challenge, too. It goes without saying that affordability comes down to the overall purchase “cost.” To figure out what that is, you need to come up with the total amount of equity (aka ownership) the two of you share in the property. In the simplest terms, you take the house’s (agreed-upon) value and subtract what is owed, and that net figure is the amount of equity. Divide that amount in half to come up with each spouse’s share, at least as it pertains to divorce in Utah and other community property states.
Here is an example:
Home value: $1,250,000
Outstanding mortgage balance: $500,000
Outstanding equity line balance: $100,000
Total shared equity = $650,000
Spouse A’s share at 50% = $325,000
Spouse B’s share at 50% = $325,000
Keep in mind other things can impact the actual amount. This example assumes a clean 50/50 equity split. It doesn’t take into consideration who will be responsible for paying off certain debts, who will bear the cost of loan fees or who will be responsible for tax obligations resulting from this title transfer. While some amounts may appear small, they can add up quickly. Whether it’s worth paying your attorneys to fight about it is a different story.
Now you know how much it’s going to cost you (in this case, $325,000) to be able to buy the house outright.
Next, come up with the money.
But how? What is the best decision for you emotionally, in terms of comfort and stability? Do you scrape together $325,000, sell your belongings, cash in investments? Do you borrow money from a bank? Do you ask family members for help? All options are worth considering.
However, one of the most common buyout options is to give your spouse your share in some other marital asset. This can be money in a brokerage or retirement account that would otherwise be yours after the divorce. It could be other tangible assets, such as expensive jewelry, a car or interest in another property, just to name a few. The goal is to put together a package that enables you to complete the purchase and fund the buyout. While you won’t need to borrow money or pay any loan interest going this route, you may end up house rich and cash poor.
Another option: Borrow the money from a bank through a refinance or by adding a home equity line of credit. In the example above, you owe the bank $500,000 and your spouse $325,000. The new loan you could apply for is $825,000, which would cover both expenses. But don’t forget to consider the long-term interest obligations that accompany a 30-year loan of this size. If going this route, be sure to get a pre-approval letter to confirm the option is feasible. Today’s lending environment requires a heightened level of due diligence, and that includes getting pre-approved before proceeding with a formal mortgage application.
A slightly different approach is to take out a home equity line of credit (HELOC) as a second mortgage in addition to your existing first mortgage. Some pros of HELOCs include that they are revolving accounts, similar to credit cards, and the interest-only payment feature keeps your monthly payments down. Cons of HELOCs include higher interest rates than first mortgages, limited interest deductibility and interest rates that are typically variable on a monthly basis (in other words, they can change monthly).
Lastly, family and friends can also be a good fallback plan. If you have family and friends willing and able to help, you’re a lucky camper.
If all else fails, accept reality and move on.
If none of these options works logistically or financially, you may have to accept the reality that you can no longer keep the house. There’s no shame in that. Divorce is a difficult proposition, but don’t make it worse by agreeing to something that will burden you financially and make it more difficult to move on and live a happy life. First, determine what is possible. Then, determine what is prudent. If you’re not sure what you can or cannot do, seek advice from someone who’s qualified. Once the emotional aspect is (hopefully) put to rest, you can look at things clearly from a dollars and “sense” point of view.
Free Initial Consultation with Lawyer
It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506